A Foreclosure And A Short Sale - How They Impact Your Credit

written by: Tony Burns 05/02/2012

Many home buyers and sellers hear of foreclosures and short sales but do not know what the terms mean. This is despite the fact that they are very important processes that can impact greatly on their finances. You must have come across these terms in the newspapers, magazines, television programs or online forums. It therefore is important to understand what they mean and the difference between them so as to be more knowledgeable the next time you want to buy or sell a home.

There an impact that a foreclosure and a short sale can have on your credit report. This is because they all relate on the money that you borrow in order to pay for your new home. Although they are totally different, they are related. In the case of a short sale, the borrower becomes unable to pay for the house and the accumulated debt exceeds the actually value of the house according to current market rates. The home is therefore listed with a realtor and the lender takes it for a lower amount.

The borrower has to agree to the offer made by the buyer. After that, the bank, which in this case is the lender, approves the sale. This is sometimes a complicated process that many people find it difficult to go through. In order to get a good offer is such a case, you may have to hire a competent attorney who will handle everything on your behalf and ensure that you end up with something good.

A foreclosure on the other hand is what happens when a person fails to pay for his debt and does not exercise any other option. For example, if the debt accumulates and the borrower does not seek for a short sell, the lender will be free to start foreclosure proceedings. The borrower ceases to be any party to the house the moment the proceedings are initiated and will therefore be sidelined from anything else that happens after that. The lender is free to put up the house for a short sale so as to recover the amount that is owed by the borrower.

Unlike a short sale, a foreclosure does not involve the realtor. The houses are auctioned depending on the laws of the state where the property is situated. In most cases, they are auctioned publicly at a Trustee Sale in a court in the County where the property is. One thing that is worth noting is that properties bought during such auctions are required to be paid for in full. There are cashiers who must issue the buyer with a receipt. The new owner is free to take charge of the property once the auction has been completed and the lender gets their money. In most cases, the auctions take a very short time to complete.

In most cases, people go for short sales in order to avoid foreclosures. However, what prevents some people from going for it is the complicated nature of the process. The lenders are under no obligation to approve the process and could therefore reject it if they want to. If such a thing happens, you will be in trouble unless you have other workable measures. You need to be sure that the bank will approve it before initiating the process. You may first try to seek for their opinion on the matter because they will always be open to listen to you. This is important to make sure that you do not waste too much of your time for nothing.

With regard to the credit impact, the delayed payments will definitely affect your credit score. A foreclosure will remain on your credit report for ten years after it happened. It also can drop your score for up to three hundred points. You therefore should try your best to ensure that you do not get into such a situation. One of the best situations is to enter into negotiations with your lender to process the short sale without missing any of your payments. Remember that a lender has a big say when it comes to the outcome of the process. You therefore must include lenders all the way and ensure that their opinion is followed.


How Unemployment Contributes to the Lag in the Housing Market

by: Tony Burns 04/12/2012
 
The widespread unemployment rate is a major contributor to the myriad of problems faced in many countries. For instance, countries that have a greater percentage of citizens who lack as source of income face difficult financial situations during recessions. Among the most affected sectors in such situations is the housing sector (Karahan and Rhee 2011). Generally, the financial bloom experienced in the housing sector will solely depend on the employment rate. This is because the unemployment rate and market inventory existing homes are directly related.
 
Joblessness creates a lag in the housing market in many economies. For example, even though the total population in the United States of America grows steadily every year, people still sell their brand new homes at a price that is 50% higher than what they originally fetched in 1963.This depicts the slow pace that the market inventory of modern homes evolves even in the world-leading economies. Consequently, countries that have a largely unemployed population will experience an underperforming housing market (Karahan and Rhee 2011).
 
Individual demographics of a country drive the demand for better housing. For instance, a booming job market leads to creation of new households that is a crucial factor for the real estate sector. Furthermore, employment augments the chances of securing mortgages and maintaining regular payments to avoid foreclosure. Generally, world economies that want to improve the viability of their housing sector should work towards stemming unemployment (Rupert and Wasmer 2009). Overall, this will depend on their ability to create more job openings. This can involve simple actions such as improving access to education.
 
People who plan to value their homes after two to three years should have a number or things in mind. First, they should consider how their labor market performs. In addition, they should comprehend the overall progress in their country's job creation efforts. This should include an analysis of the national and local levels. Generally, doing this level of analysis will help new home dealers shield themselves from running into losses. It can also guide new business enthusiasts as whether to engage in real estate in their area or just do old home restorations and sell them at a market-friendly price.
 
What is certain is that when a housing market underperforms, the economy may also worsen as the years go by. For instance, while the working age of a population will be on a steady rise, their labor force will continue to lessen. These jobless people will get discouraged and stop looking for work. Consequently, the economy will have to support a largely unemployed population that does not contribute to its development. Countries should develop plans that will help people to gain access to new homes. They should formulate avenues that enable people to buy homes, even if they have bad credit. This will not only ensure that they create a booming housing sector but also facilitate economic development.
 
Bibliography
 
Karahan, F., and S. Rhee. 2011. Housing and the Labor Market: The Role of Migration on Aggregate Unemployment. Mimeo. http://econ.as.nyu.edu/docs/IO/19603/FaithKarahan.pdf.
Rupert, P., and E. Wasmer. 2009. Housing Markets and Labor Markets: Time to Move and Aggregate Unemployment. http://econ.ucsb.edu/papers/wp08-09.pdf.





4 Big Mistakes Home Buyers Make

written by: Tony Burns 04/01/2012

Buying a new home is a major investment and one that should be approached with a lot of caution. Because of the considerable financial input that such an investment normally entails, many new homebuyers find the task of buying a new home to be rather daunting. The statement above is even more true for the first time home buyers, all of whom have very little or no experience at all in the purchase of a home before. A careful analysis of the actions of homebuyers around the world and an examination of why a considerable proportion of them end up with bad bargains or homes in which they are not comfortable reveals that there are a number of mistakes home owners make that are the cause of the same. By knowing the common mistakes homebuyers make and avoiding the same when buying a new home, the task of choosing and actually buying your dream home would be a lot more rewarding and satisfactory. In fact, by doing so, you are bound to get a much better bargain for the home than you would otherwise obtain. The subsequent parts of this article will discuss in brief detail the 4 big mistakes homebuyers make, as well as the best ways to avoid making these mistakes. They include the following;
 
- Over spending
 
Over spending on a new home is the first and most widespread of the mistakes homebuyers make. As any qualified real estate property agent would tell you, it is important to carry out a pre-approval of the home you intend to purchase before actually making the purchase. Carrying out a pre-approval of the house, including an elaborate appraisal, would help you to establish the true worth of the house. It is also worth pointing out here that most of the real estate agents who engage in the sale of homes in all parts of the world are very convincing people. In addition, a considerable proportion of the property agents or agencies are paid their fees in the form of percentages that are charged on money made from the sale of the home. As such, it is in their direct interest to sell the homes at the highest reasonable prices and to do this; they will most likely provide prospective homebuyers with exaggerated quotes of the home prices. It is very easy for gullible homebuyers to fall victim to these quotes and they eventually end up paying a lot more money than they would have otherwise had to pay.
 
- Choosing incompetent agents
 
The buyer’s agent that is chosen by a prospective home buyer plays a very significant role in the success of the endeavor. This is because the homebuyers rely on the agents to identify the right houses and strike the best bargains on their behalf. In this respect, another of the big mistakes home buyers make is choosing the wrong buyer’s agent who may not be competent enough for the task and who may actually end up striking very poor bargains. Most of these homebuyers choose their agents simply on the basis of the fact that they are the cheapest.
 
- Skipping home inspections

Another mistake that homebuyers normally make is making no home inspections before buying the homes. When a homebuyer fails to make elaborate home inspections before the purchase of a home the result, more often than not, is that they end up with a home with which they are not satisfied. While the new home may look perfect to a casual eye, it may have problems such as plumbing problems, electrical faults or leaking roofs, all of which would make it very unsatisfactory when the buyer finally moves in. In addition, they will require more expenditure to fix on top of the purchase price if they are not discovered in time.
 
- Poor negotiation
 
Most homebuyers do not understand the fact that lowballing the sellers purchase price, if approached in the right way, can go a long way in helping the homebuyer make considerable savings in the purchase of the house. Most of them therefore present the home sellers with lowball offers in manner that seems insulting to the seller and therefore resulting in poor bargains.
 
The above list of common mistakes homebuyers make is not conclusive. However, preventing these mistakes should make your purchase a lot more rewarding.


All you want to know about HARP 2.0

by Tony Burns 02/28/2012
 

On October last year, the Obama administration announced modifications to the Home Affordable Refinance Program, commonly known as HARP. The new program titled HARP 2.0 has come into the fray to facilitate insufficient refinancing and more importantly negative equity borrowers. Talking about negative equity borrowers, these are the borrowers whose loan-to-value ratios are above 80 percent. Simply put, HARP 2.0 program is tailor made for borrowers with mortgages sold before May 2009 to the government sponsored enterprise mortgages.

Time will be the best judge of this program, but one thing is for sure that lot more borrowers will get the advantage out of this program. Initial signs are that the affects will be targeted to local economies and housing markets that are hit very badly by the housing collapse. One needs to take into account that these markets have the biggest shares of negative equity borrowers.

And that is where, HARP 2.0 is going to be a boon for the government-sponsored entities such as Freddie Mac and Fannie Mae because of the fact that it not only minimizes delinquency risk but also be an asset to the origination market as it will give rise to more demand for mortgage refinances. There is a strong possibility that it may have some positive impact on the economy and consumption. Key modifications

Some of the key modifications to HARP are mentioned below:

-First and foremost, there is no place given to the 125 percent LTV ceiling. It means even if your negative equity level is quite high, you are now eligible for it.

-There is quite a bit of lowering of risk-based fees, widely been regarded as loan-level pricing modifications… However, the lowering will be dependent on the newly refinanced loan term.

-There is going to be a Warranty relief for the financial institutions committing loans HARP 2.0. The complete information regarding this relief is not known as yet but there is a good chance that it will not cover willing misrepresentation and fraud. Instead, you will get the relief on the basis of appraisal quality and value determination.

-You get a chance to re-subordinate current second liens. Accrual of Benefits Will Vary
Due to the significant concentration of negative and insufficient equity prevalent in the markets because of dip in house prices, HARP 2.0 is going to offer targeted stimulus to you.

You are going to get quite a bit of discount in the GSE mortgage refinancing in terms of rate. Furthermore, your mortgage payment is going to be reduced appreciably, having a positive impact on the overall balance sheet of the household. This in turn should minimize future mortgage delinquency on the loans that you have taken.

Most of the experts are of the opinion that HARP 2.0 is going to play a pivotal role in the increase of transactions especially after the eligibility criteria being relaxed, beginning this year and going into next years. Talking about the origination market, it is all set to be in the range of 1.1 - 1.2 trillion in 2012 and assuming identical volumes in 2013, the impact of HARP2.0 is going to be widely seen.

In terms of statistics, if more than 2 million borrowers go for refinance and lower their payments, one can safely say that HARP 2.0 represents a tremendous economic stimulus. There is a strong chance that investors will take into consideration the prepayment speeds and are going to get involved in it. Conclusions
Due to the concentration of negative and insufficient equity, the tax advantage of minimized mortgage payments is going to be a targeted stimulus to lots of the markets that are hit very badly.

GSEs are also going to get advantages in the shape of minimized delinquency risk. Talking about the mortgage origination market, it is definitely going to witness the enhanced volumes this year and next year. On the other hand, as an investor, you are going to witness enhanced prepayment speeds.

If you are involved in the local housing markets, you are not going to get immediate benefits but with the passage of time you are going to get some benefit because of the economic stimulus of the tax advantages and of course minimized delinquency risk later on in the piece. If you follow a right kind of approach, you are going to experience improvement in your credit rating.

 

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